Apple could sell music streaming to 15% of iTunes users

Roughly 15% of US iTunes users would be interested in paying USD10 a month for a subscription service from Apple offering either music streaming or web access to their existing music libraries, according to NPD Group. More than a quarter would like to access their music libraries from a web-connected device if it were free, adds the report. The research suggests there could be a huge market for a paid iTunes streaming service that could potentially catapult Apple to the front of the music streaming space.

"Between 7m and 8m iTunes users in the US would have strong interest in one of the paid subscription options," says the report. "These consumers indicated a willingness to pay a minimum monthly fee of USD10 - either for streaming music or access to their personal music libraries on multiple devices."

If all of those who expressed an interest in an iTunes subscriptions service signed up at USD10 per month, it would generate revenues of almost USD1bn a year, equal to roughly two-thirds of Apple's revenues from current iTunes downloads, says NPD. However, Apple might have to pay a bigger cut to record labels than it currently does with paid downloads. Such a service might also cannibalise iTunes song sales. However, there are some signs that music download sales are stalling, and Apple may feel it needs to get into paid streaming services or risk being overtaken by firms already working in the area. NPD VP and senior analyst Russ Crupnick says the music industry is still desperately seeking new revenue models because digital downloads have failed to compensate for declining CD sales.

"New models need to be developed," he tells StrategyEye. "Ad-supported was touted as the future, but has pretty much been a failure - though ads might be one component of how they get paid it won't be the central method."

"You could argue that at some point in the future we won't be owning content at all, whether it's music, videos, books, magazines and maybe even video games," he adds. "Eventually everything is going to be some version of cloud, on-demand, or streaming etc. My guess is that everyone recognises this and rather than wait to get run over, as happened in the early days of digital music, the objective will be to rapidly develop models that consumers will accept and that will create some returns for the content owners."

Apple has long been rumoured to be preparing a music streaming service. It bought music streaming firm Lala late last year and has since closed the site without revealing what it is doing with Lala's technology and staff. Services such as Rhapsody in the US and Spotify in Europe have offered paid subscriptions for some time, and Spotify also offers a free, ad-funded streaming option. Spotify's 500,000 subscribers are insignificant compared with the market Apple could tap via iTunes. However, the Swedish firm says it is on track for a US launch before the end of this year, and Apple may feel the need to get its own service to market before Spotify. The rumoured launch of a music streaming service from Google is also likely to have an impact on Apple's music plans.

Many commentators feel Apple is most likely to introduce the option that allows users to access their existing libraries via web-connected devices. This is unlikely to generate revenues directly. However, it would help neutralise one of the main advantages emphasised by rival streaming services. Many commentators believe consumers will come to expect to be able to access a broad range of services from the cloud. However, Crupnick says in the report that there is still huge uncertainty surrounding any potential Apple cloud music service.

"We don't yet know what, if any, effect these services might have on the traditional pay-per-download music model, or whether consumers will ultimately spend more on digital music overall, if or when any of these options eventually rolls out," cautions Crupnick.